I’ve been running a bunch of money almost as long as Warren Buffett, but Warren’s made a bigger pile. I am CEO, CIO and founder of Atalanta Sosnoff Capital, LLC, a private investment management company with $6 billion in assets under management. Sold my Geico and American Express holdings prematurely, but sported one of the first beards on Wall Street in 1964.

I was a hedge fund operator when only a handful of investors could define this construct. Later, I made a hostile tender for Caesar’s World, but my corporate clients frowned on this gambit. Today, activist operators like Carl Icahn stand revered as saviors.

While a Forbes columnist for many years, the late, great editor of Forbes, Jim Michaels, forbade me to use Yiddish expressions because his readers in North Dakota wouldn’t get it. Alas, I can’t make a living as a writer. I’ve learned to be Humble On Wall Street. Silent Investor, Silent Loser embraces a shareholder activist theme along with my love of France and contemporary art.

3/04/2013 @ 5:12PM3,751 views

The Basics Of Bull Market Stock Picking

Wanna go to the moon? Recall a couple of columns ago my pontification that the S&P 500 Index soon forges into new high ground (over 1,550). Well… the momentum’s intact. Neither mean spirited jockeying in the Capitol, nor buffoonery in Italy can short-circuit this market’s blitzkrieg.

I feel like the tank company commander in George Patton’s army, when the general said he wanted to see the captain pissing on the banks of the Rhine River by nightfall. “Which side,” the officer asked, “left or right bank”?

I’m going to paraphrase the jist of what I wrote two columns back. (Read it!) I learned about repetition from Jim Michaels, Forbes’s great managing editor over a good 40 years. “Just tell ‘em. Write regularly if you want to make an impression and be heard.”

Lemme say it in 25 words or less. The Fed ain’t about to tighten. Consumer sentiment and spending rest intact. Housing’s recovery seems irrepressible and a capital goods recovery finally shows some life. (24 words, guys.)

What else do you need to know? Bernanke’s testimony pointed to sticky unemployment indefinitely. No serious tightening in the wings; the Fed’s bond buying program sticks in place.

Bubbling beneath the surface of the market is the surge in deal activity, Heinz just the first of successive $20 billion plus deals. Easy to finance at 5 percent without leveraging EBITDA more than a 4 to 1 ratio.

Little appreciated is once deal activity embraces a cross-section of industries it lifts all ships in their respective sectors. During the eighties, I saw this phenomenon in broadcasting, gaming casinos, natural resources, department stores, banking and finance as well as technology and consumer non-durables. Remember the battles over Reynolds Tobacco, Revlon and later Aluminum, Ltd.?

I remember a Goldman Sachs report written by my friend Barrie Wigmore who determined that 20 percent of the eighties bull market, pre-Black Monday, was traceable to deal activity and buybacks. A current study by Credit Suisse suggests the present market’s deal levitation could amount to 9 percent. I smell it coming.

Where to go with your capital? The S&P 500 Index year to date holds its own against all other financial markets here and abroad, up nearly 7 percent. The value sector, thanks to banks, handily outperforms growth stocks and NASDAQ. Emerging markets don’t show us much, as yet flat while the world index, (MSCI) trails the S&P 500 by 250 basis points.

High yield bonds, plus 1 percent, seem on track to earn their coupon (6 percent) but little more. Barring a weakening economy, Treasuries remain a dead man’s hand. LIBOR is next to nothing and facilitates deal financing and home mortgages tied to LIBOR.

The mystery for me is why so few operators tap margin credit which is tied to LIBOR. Players can borrow at 70 basis points and love it. When you look at margin credit, outstanding, some $350 billion, and relate it to Big Board’s valuation, we’re talking a pittance; equivalent to 1 day’s trading activity. And yet, I don’t sniff speculation in the air. The market rumbles in risk on, risk off variance, shying at every macro variable that could spell trouble.

When I look at the top 100 stocks by market capitalization, my playing field, excepting Sirius XM Radio, implementation, or stock picking is still not a lay-up. Stocks within their respective sectors can show extreme variance, Apple vs. Google, for example. In energy Exxon Mobil is relatively stillborn compared with Chevron and Schlumberger, up 13 percent year-to-date. Procter & Gamble and PepsiCo are in comeback mode but Coca-Cola is not on fire. Wal-Mart struggles but not Home Depot.

In the banking sector JPMorgan Chase is the standout. I see JPM as a $60 stock twelve months out, now ticking at $49. Wells Fargo doesn’t show us much along with Bank of America and Citigroup, but the last 2 get my money. Goldman Sachs outperforms all the banks, up 18 percent year-to-date. I see Goldman going into its cycle, especially deal activity, underwriting and trading, the heart of their business. I missed Morgan Stanley, in recovery mode, up 20 percent.

I’m not surprised at how buoyant biotechnology paper trades. The market still starved for growth stories wants Biogen, Gilead Sciences and Celgene. I am nonplussed on the relatively good action in ethical drug houses like Abbott, Bristol-Myers Squibb, Eli Lilly and Pfizer, largely financial engineering plays with ample dividend coverage.

Technology, all over the place, is a big disappointment just so long as information technology spending lays dormant. Aside from Google, there are no big cap performers. Microsoft, IBM, Oracle, Intel and EMC trail the market. Only recovery speculations like Hewlett-Packard and Texas Instruments stand out.

My top positions show major overweighting in financials and except for Google, I’m light in technology. Biotechnology is a serious overweight for me, namely Gilead. JPMorgan Chase is a major commitment along with Citigroup, Goldman and Bank of America.

I can’t model B of A as easily as Morgan and Goldman but I’m patient. Amazon is my sole luxury and so far it’s a non performer. Qualcomm, a major position, equals the market but its dominance holds in the smartphone components sector. I’m a patient holder of Walt Disney and News Corporation, too.

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